Markets

NYU's 'Dean of Valuation' says Peloton is worth only $19 with 'benefit of every doubt'

Key Points
  • NYU Stern professor Aswath Damodaran says Peloton's valuation is too high.
  • "My estimate is about $18 to $19, and that is giving them the benefit of every doubt," Damodaran says.
  • The fitness start-up tumbles about 12% in its public debut to as low as $25 a share, below its IPO pricing of $29 per share.
Peloton introduces a treadmill to their product line.
Emily Gaffney | CNBC

Peloton is worth $19 a share at most, according to Wall Street's valuation guru.

The fitness start-up tumbled about 11% in its public debut on Thursday to as low as $25.76 a share, below its IPO pricing of $29 per share, which was at the high end of expectations. New York University professor Aswath Damodaran, sometimes called the "Dean of Valuation," said the valuation is "too high."

"My estimate is about $18 to $19, and that is giving them the benefit of every doubt," Damodaran said on CNBC's "Power Lunch" on Thursday.

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Why this IPO pro says Peloton valued too high

If Peloton trades below $27, it would be on pace to become the second worst debut of a unicorn this year. Uber currently holds the second-place spot with a loss of 7.62%. Online dentistry company SmileDirectClub slid 28% on its debut, the worst market debut for a unicorn start-up in 2019.

"I think the problem here is you have fundamentally a good business model, but I just don't think it can scale up enough to justify the market cap," Damodaran said.

Peloton's offering initially valued the digital fitness company at $8.1 billion, but it raised $1.16 billion.

However, Damodaran said unlike Uber and WeWork, Peloton has a path to profitability because of its subscription-based model.

"To give Peloton credit, their business model is a little more formed than WeWork's and Uber's," Damodaran said. "It's the subscription model that eventually is going to make them profitable. ... It's a gift that keeps on giving."

Growing membership has helped Peloton's sales grow to $915 million for the fiscal year ended June 30, up 110% from $435 million in fiscal 2018.